April 27, 2018
This week, the U.S. Chamber of Commerce (USCC) Center for Capital Markets Competitiveness (CCMC) held the twelfth annual Capital Markets Summit. But this year was different than many of those that preceded it, with a special focus on the “Future of Finance.” For a decade, the industry has been primarily focused on understanding and implementing a seemingly endless onslaught of regulation, but today’s environment allows for a more forward looking and proactive discussion.
Indeed, we discussed many good reasons to be optimistic about the state of the financial services industry: the recent U.S. circuit court decision to overturn the DOL’s fiduciary rule; the Consumer Financial Protection Bureau’s renewed interest in maintaining high consumer standards while abiding by greater levels of accountability; the passage of tax relief for millions of American businesses; the Senate’s passage of S. 2155 providing regulatory relief for many U.S. banks; and the pace of change in the industry developing new technologies like blockchain and the cloud.
Speaking at the summit, Allstate’s Chairman, President and CEO and U.S. Chamber of Commerce Chairman, Tom Wilson echoed a sense of optimism about the vibrancy of U.S capital markets, “Our capital markets are the envy of the world and a competitive advantage. There is not a country in the world that wouldn’t swap with us.”
The reprieve from constant regulatory change has allowed some breathing room to examine areas that should be addressed to further improve the health of the industry and, in turn, the entire economy. Attendees heard from experts on one issue that should be of concern, not only to the financial services industry but also to the businesses they serve. As President and CEO of the U.S. Chamber of Commerce Tom Donohue said in his opening remarks, we are facing “the crisis of the vanishing IPO.”
At the event, CCMC released a joint paper with the American Securities Association (ASA); the Biotechnology Innovation Organization (BIO); Equity Dealers of America (EDA); SIFMA; TechNET; NASDAQ; and the National Venture Capital Association (NVCA), entitled, “Expanding the On-Ramp: Recommendations to Help More Companies Go and Stay Public.” This grouping of organizations share a concern that the decline in public companies has created fewer opportunities for American families and businesses, and they are not alone in their concerns.
Speaking at the event, Co-founder of Broadmark Capital, Joseph Schocken confirmed the notable decline in smaller, mom and pop investable companies going public, “We used to have $25 million regional IPOs. That entire class of public offerings has gone away, and that is why this report’s recommendations are so important.” Further confirming the deleterious effect of the decline in IPOs on the real economy, Senior Vice President at Nasdaq OMX, Randall Hopkins added, “What we see is that this IPO challenge has a real world impact on companies’ ability to grow, hire, and deliver value.”
Clearly, there is widespread agreement that there is a problem to address, but where should industry begin? The joint report offers a few recommendations that stakeholders can adopt to make a real difference towards improving the state of the IPO market:
- Reform proxy advisory firms.
- Build on the progress of the 2012 JOBS Act. The report offers suggestions on what enhancements to the original act should be included in a JOBS Act 2.0.
- Encourage research on Emerging Growth Companies (EGCs) and other small public companies which will help increase investor interest and liquidity in the market.
- Make improvements to certain corporate governance, disclosure, and other regulatory requirements.
- Reform certain aspects of Financial Reporting.
- Move from a one-size-fits-all approach to a tailored approach of equities markets regulation.
The report recommendations offer a road map and are not an immediate panacea. The changes in the IPO market that have led to the decrease in companies going public didn’t happen overnight, and they won’t be fixed overnight. Stakeholders including industry, the SEC, and Congress will need to work together to adopt these changes, but it is certainly a challenge worth accepting.
As Donohue concluded his remarks, “If we fix these factors, we’ll see a resurgence in IPOs that will create millions of new jobs, plentiful opportunities for mom-and-pop investors to get a great return on their investment, and a stronger, more vibrant, and more innovative economy.”
Beating the crisis of the vanishing IPO is what we would call a "win-win."